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Presiden Obama in the White House (Photo credit: U.S. Embassy Jakarta, Indonesia)

During the campaign, President Obama blasted away at Mitt Romney’s proposal for Medicare reform, because, according to Obama, “no American should ever have to spend their golden years at the mercy of insurance companies.” And yet, the President is subjecting some of the poorest seniors in America to the tender mercies of private insurers. If he thinks private insurers are good enough for low-income retirees, why doesn’t he think they’re good enough for everyone else?

One of the thorniest entitlement-reform problems in America is what to do with so-called dual-eligibles: poor seniors who are eligible for both Medicare, our single-payer system for retirees, and Medicaid, our program for low-income Americans. Approximately 9 million Americans fall into both categories, representing 21 percent of Medicare beneficiaries in 2009, and 15 percent of all Medicaid beneficiaries.

Because dual-eligibles are older than the average Medicaid patient, they represent a disproportionate share of Medicaid spending: 38 percent in 2009. But dual-eligibles aren’t just expensive because they’re older, but because of massive inefficiencies in the way these patients are managed.

Obama: Private insurers are great for poor seniors

Hospitals and nursing homes are experts at gaming the system so that they can maximize the reimbursements that they get from these two poorly-paying programs. If Medicare pays more than Medicaid for a particular treatment or service, providers will bill Medicare. If Medicaid pays more, they’ll bill Medicaid. In other words, a significant chunk of the extra cost of these “dual-eligible” patients is not that they’re older and poorer, but that their care is paid for by two separate government agencies that don’t always talk to each other.

Under a new provision in Obamacare, the Centers for Medicare & Medicaid Services—CMS—created a pilot program called the Financial Alignment Initiative to put dual-eligibles under the management of private insurers, using either a capitated model (a fixed payment per enrollee) or a fee-for-service model (the traditional Medicare reimbursement approach).

For states to gain CMS’ approval to participate, CMS required that states promise that the private plans they employ cover the full range of traditional Medicare benefits, and that the savings would benefit both Medicaid (which is partially funded by the states) and Medicare. 15 states have already been approved for the program, and 26 more have applied for it.

There are considerable ironies in CMS’ approach, given that Obama and his allies claim to think it’s a terrible idea that Mitt Romney sought to let future seniors send their business to private insurers, if those insurers can cover the same people at a lower price than traditional Medicare.

Unlike the Romney plan, which would have given seniors the option to stay in the traditional, government-run program, Obama’s plan would require all seniors in the approved states to move to private insurance on the Medicaid side. (On the Medicare side, the dual-eligibles could choose between traditional, fee-for-service Medicare and the more market-oriented Medicare Advantage program.)

Washington drags its feet

Not everybody is happy about Obama’s move. The Medicare Payment Advisory Commission, known as MedPAC, sent CMS Acting Administrator Marilyn Tavenner a letter in July, arguing that the pilot program was moving too quickly, without adequate safeguards. Sen. Jay Rockefeller (D., W.Va.) sent his own letter to Kathleen Sebelius, urging her to “take immediate steps to halt this initiative as currently structured.”

MedPAC’s concerns basically boil down to bureaucratic foot-dragging: Obama’s privatization of dual-eligibles moves too quickly and affects too many people. “If all of these state proposals are approved,” the MedPAC commissioners wrote, “approximately 3 million dual-eligible beneficiaries will be enrolled” in the pilot program, “approximately 40 percent of all full-benefit dual-eligible beneficiaries…The scope of the demonstrations as proposed is too broad.”

MedPAC argues that private insurers lack the experience to manage such complicated patients, and, paradoxically, that “there may not be sufficient numbers of dual-eligible beneficiaries” in certain states to evaluate the demonstrations.

The MedPAC criticisms don’t make a whole lot of sense. Private insurers have plenty of experience dealing with complex patients, and indeed are more likely to be able to handle such cases in an integrated fashion, when compared to the Keystone Kops approach currently employed by Washington and the state capitals. Indeed, the whole idea of care coordination was pioneered by private insurers. More than two-thirds of all Medicaid beneficiaries already are enrolled in some form of privately administered managed care.

Doing nothing is not an option

Most importantly, doing nothing is not an option. Rapidly rising Medicaid costs are forcing states to make impossible choices between drastically cutting health-care services or pulling back on spending on education and other social services. “California is already counting on more than $500 million in budget savings from its own program this year” for dual-eligibles, reports Margot Sanger-Katz of National Journal.

If we don’t employ private insurers to improve the efficiency of these services, the only alternative is blunt cuts to benefits, payments, and access. Low-income seniors would fare far worse under the go-it-slow approach favored by MedPAC. State governments understand this, which is why so many of them are banging down CMS’ doors.

Migrate dual-eligibles onto Obamacare’s exchanges

The best long-term reform would be to create a customized insurance product for dual-eligibles that could be added onto Obamacare’s exchanges. Here’s why.

As I’ve discussed previously, raising Medicare’s retirement age is now the easiest and most important component of entitlement reform, because these younger seniors will have access to Obamacare’s exchanges. But unless you address the dual-eligibles, younger seniors below the poverty level who have the retirement age raised on them will not have access to the exchanges, but rather to Medicaid.

Creating an exchange product for all dual-eligible seniors older than 65, even if the broader retirement age is raised, would eliminate this problem. In addition, migrating the duals onto the exchanges will mean that these low-income seniors will get better-coordinated, higher-quality care, because they’ll be dealing with one insurer instead of two.

The downside of this approach is that it would also reduce the fiscal savings from raising the retirement age, because the exchanges are fully funded by the federal government, whereas Medicaid is partially funded by the states. But that trade-off is well worth it, especially if moving from two insurers to one results in greater cost-effectiveness.

It takes a lot of brass, as Bill Clinton would put it, for President Obama to carp about Republicans putting seniors in the hands of insurance companies, when his own administration has been aggressively doing just that. But now that the election is over, perhaps there’s a way for both parties to come together, by using private insurers to bring higher-quality care to the poorest, sickest, costliest patients in America.